The Newly Nominated Commissioner

The press reports that President Trump would nominate Chuck Rettig as the new IRS Commissioner were followed with a formal announcement. Assuming he is confirmed, Mr. Rettig will serve as the first tax lawyer in this position in the new millennium. I applaud the return to having someone run the IRS who has a deep understanding of tax law but perhaps this shows my age rather than my management acumen. In addition to applauding the return to the position of commissioner someone who has a career in tax law, I also applaud the selection of Mr. Rettig who will perform ably in this position based on his experience and demeanor.

For those interested in tax procedure and tax controversy, it is especially notable that the President has nominated Mr. Rettig. Even in the bygone era of tax lawyers as commissioners, it was not necessarily the norm to appoint a tax lawyer who specialized in controversy rather than tax planning. This is an important opportunity for the shaping of tax administration by someone very familiar with tax procedure and the issues created when taxpayers have a problem with the IRS. One earlier commissioner with a litigation background (having taken Flora v. United States to the Supreme Court twice) who served with distinction and stood up to President Nixon when he sought to use the IRS to torment his “enemies” was Randolph Thrower. It is a proud tradition to uphold.

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Since the appointment of Charles Rossotti in 1999, Presidents have appointed a series of individuals with management experience but not tax experience. Mark Everson became commissioner in 2003 with a fair amount of government management experience, Douglas Shulman in 2008 with public and private management experience, and John Koskinen in 2013 with significant public and private management experience. Each of the “management” commissioners over the past two decades had the type of experience necessary to run a large organization, but a steep learning curve on the culture of the IRS and the tax laws it administers. With the exception of Commissioner Everson, I met each of the others briefly and formed favorable impressions. Commissioner Koskinen seemed terrific but could not shake the real or apparent hatred of several vocal members of Congress.

From the time I started working at the IRS and for several decades before, the traditional appointee to the position of Commissioner was a tax lawyer. Usually someone from a big firm and someone with decades of tax experience. Even a lawyer at a big firm, however, has no experience managing a large organization like the IRS with many components. As the information technology component of the administration of the IRS became more and more important, the desire for a tax lawyer became less and less. So, for the past two decades we have had a commissioner who was a management specialist rather than a tax specialist who might surround themselves with others with strong management experience. It’s past time to try a tax lawyer again.

So, who are getting? I had the pleasure to serve with Mr. Rettig on the ABA Tax Section governing council first as co-fellows at large and then with Mr. Rettig elevated to the executive leadership of the section in charge of the finances. He took on the leadership position at a time of challenging finances for the section and he immediately took on the hard task of finding places to cut the budget and seeking new sources of revenue. He has done an excellent job in this position. He has management experience as the managing partner of his firm. He has quite a resume of service to the profession and to the government on advisory boards. He has also been one of the creative forces and leaders behind a very successful ABA conference on offshore issues.

Much of Mr. Rettig’s practice in the past several years has centered on representing individuals with assets offshore who needed to reach an agreement with the IRS. In this type of practice he must learn criminal tax law, civil tax procedure, tax litigation, and a lot of client management. My friend John McDougal who spearheaded the IRS efforts in offshore identification and compliance prior to his retirement has nothing but good things to say about Mr. Rettig as a practitioner having worked with him closely on a number of matters. Praise from John is not easy to come by. I have heard praise for Mr. Rettig from those who work closely with him on many occasions.

Mr. Rettig has a great personality and the kind of personality that will allow him to build the kind of rapport with Congress that the IRS desperately needs in order to get back to proper funding levels. I do not mean to suggest that I think he can charm his way to greater budgets, but I think he will figure out how to work with the appropriate people to make it possible to make a winning pitch for the type of support and the amount of funding that the IRS needs to properly do its job.

The non-tax background commissioners of the past two decades have been smart people with lots of relevant experience in running an organization but it will be refreshing to have a leader of the IRS who knows the tax system from the trenches. He is someone who can quickly size up the proposals being made to him from the compliance and taxpayer assistance functions. Having worked with many clients seeking to hide their money offshore and seeking to fix a problem of having an offshore account created by someone else, he will be able to size up the types of strategies that will allow the IRS to put resources into the proper place to promote compliance based not just on reports from various IRS functions but from decades of working with taxpayers seeking to comply (or not) with the tax laws.

The President has made a great choice. I hope Congress will quickly confirm the choice so that the IRS does not go too long without leadership.

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Comments

Keith, I appreciate your thoughtful commentary and personal insights about working with Mr. Rettig. My initial reaction to the news of his appointment as Commissioner was similar to yours, very positive. I know Mr. Rettig will have his hands full with this position but am hopeful his first hand view of the IRS’s challenges and strengths will enable him to improve the quality of service and morale there. The many IRS employees who have worked through years of budget cuts and declining morale certainly deserve a continuation in effective leadership.

As noted, some IRS observers believe the best choice for Commissioner of Internal Revenue is an experienced executive with public and private experience, while others believe the best choice is a lawyer with tax expertise and experience dealing with IRS from outside the system.

Both groups are wrong, of course. But until a tax law professor is nominated and confirmed, it might be best to alternate between the two types, as will happen when Charles Rettig earns Senate approval.

Most tax professionals will consider it in his favor, that he has sat at his Beverly Hills desk or conference table to advise clients on litigation when they disagree with IRS. They may not have the same issues as those of us who deal with middle-class or low-income taxpayers, but the procedures and judges are the same.

I came across four Tax Court cases in which Mr. Rettig appeared. There is a win, a loss, and a draw. He even inspired some wordplay in an opinion by Judge Mark Holmes.

Mr. Rettig was one of four lawyers with whom the Tax Court agreed, ruling on a motion for summary judgment, that Tax Court review provisions of section 6404(h) apply to denials of interest suspension under section 6404(g). IRS had taken the position that the court review provisions of 6404(h) applied only to final determinations relating to 6404(e), dealing with abatement claims running from IRS ministerial or managerial mistakes. The Tax Court held that it does have jurisdiction to review an IRS determination that the suspension period does not apply.

This case illustrates that the wheels of justice often grind slowly. The case is still on the Tax Court docket. After the Court decided it has jurisdiction, the last filing is an October 26, 2016 status report filed by the petitioners. There are two related cases involving the same petitioners. In Docket No. 008220-13, the last filing is apparently the same status report. In Docket No. 027306-14, the petitioners filed a status report on September 1, 2017.

Mr. Rettig’s clients lost on the issue of whether $987,040 in LLC “management fees” were deductible, but won their argument that Section 6662 accuracy-related penalties should not be assessed. (Mr. Rettig was not involved in the preparation of the return. It was done by a KPMG partner who was a CPA and lawyer with more than 40 years of experience.)

Judge Holmes in a footnote gave some history of “limited liability companies,” even in 2009 a somewhat novel creature in tax litigation. But that was not until he used some equine references that frankly went over my head. It might be because “Canterbury” is the name of a horse racing track in Minnesota — not one with which I was familiar during my college days when I worked on a Chicago newspaper’s horse-racing results desk. Judge Holmes wrote:

“Christopher Woodward, David Teece, and Kenneth Klopp were partners in Canterbury Holdings, LLC. Canterbury mounted a takeover of an old New Zealand clothing company in 1999. Its ride turned rough, and the shell company that Canterbury was using had to pony up more money in 2000 and 2001 to make the deal go through . That money actually came from Canterbury itself, but Canterbury argues that these payments are deductible nonetheless . The Commissioner disagrees, and would also saddle Canterbury’s partners with an accuracy-related penalty.”

Then there are two estate-tax cases in which Mr. Rettig represented executors. The first, Estate of Trompeter, TC Memo 1998-35

contains many useful facts about the valuation of large coin collections, if you want to wade through its 68 pages. However, the petitioners lose on most, if not all points, and are assessed a penalty:

“After our detailed review of the facts and circumstances of this case, in conjunction with our analysis of the factors mentioned above, we conclude that respondent has clearly and convincingly proven that the coexecutors filed the decedent’s estate tax return intending to conceal, mislead, or otherwise prevent the collection of tax. We also conclude that section 6664(c) does not insulate the estate from this penalty; we find no reasonable cause for the underpayment, nor that the estate acted in good faith with respect to the underpayment. We sustain respondent’s determination of fraud.”

Keep in mind that even serial killers are entitled to competent representation.

In a 28-page opinion, Judge Swift listened carefully to the arguments of both sides concerning the valuation of a large block of publicly-traded Reliance Steel and Aluminum Company. The estate suggested a 20.72% discount, and IRS recommended only 8%. The Court’s solution was 14.2%. No doubt it was just coincidence that this was almost exactly halfway between the two positions.
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Commissioner-designate Rettig should also be applauded for his history of media availability. Many tax practitioners are reluctant to speak to journalists about tax issues. Between 2000 and 2004, he was the go-to guy for columnists Kathy Kristof and Liz Pulliam Weston of the Los Angeles Times, whose financial-advice columns were widely syndicated to other newspapers.

In May 2004, for example, Ms. Kristof quoted him in a column about IRS efforts to settle “Son of Boss” cases by waiving penalties for those who voluntarily settled. Mr. Rettig told her, “If you look at the effort of trying to chase those people versus opening the door and letting them come in, this makes a lot of sense.” Commenting on other amnesty programs, he added “there are a lot of wannabe taxpayers who just don’t know how to get back into the system. When you provide some incentive for people to come forward, you find a tremendous number of folks step up to the plate.”

In August 2000, he had offered Ms. Weston some rather colorful advice: “If the taxpayer buries his head in the sand and ignores the liabilities, as the saying goes, the only place left in the air to kick is going to [get] hurt. No one should wait for the IRS to knock on their door before attempting to rectify the situation.”

In May 2008, Mr. Rettig was quoted by Tom Herman of the Wall Street Journal in an article headlined “Offshore-account holders bite their nails.”

“People are having trouble sleeping at night. They don’t want to go to prison.” . . . If you have an offshore account with unreported income, you “should definitely be worried,” says Mr. Rettig, who represents a number of clients with such accounts. And if you have an account in Liechtenstein, you should “lawyer up immediately.”
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A final note: in December 1997, Charles and Susan Rettig of California, pro se, filed a Tax Court petition at Docket No. 023484-97. The case was closed with a stipulated decision in December 1998. Visitors to the Tax Court archives in Washington may be able to determine whether these Rettigs are related to the current nominee.

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Leslie Book

Keith Fogg

T. Keith Fogg is a Clinical Professor of Law at Harvard Law School where he started a tax clinic in 2015. Prior to joining the faculty at Harvard, he began his academic career at Villanova Law School in 2007 after working for over 30 years with the Office of Chief Counsel, IRS. Read More…

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